The sales that took place in February and March might seem to indicate that the level of demand is not tempting sellers to bring properties to auction.
Indeed, the first thing that stands out in the latest Acuitus/IPD cPad report is that, year-on-year, volumes were down 8% on corresponding sales in 2014.
However, the fact of the matter is that investor demand in the room continues to hit new highs while supply is not keeping up.
A better indicator of what is happening in the auction room is the all-property sales rate for February/March, which at 86% surpasses the success rates achieved even in the 2005-2007 market boom.
The Acuitus auction in March raised £40.2m with the sale of 98% of the lots offered. It was our best-ever sale rate and a quarter of the lots achieved more than £1m.
It was a result that reflected the depth and breadth of investor interest that we now have in the auction room. Successful bidders range from seasoned veterans through to those who are making their first purchase at auction.
The case that property is making to private investors is probably the strongest it has been this decade, as yields remain significantly above other forms of investment.
The “sweet spot” for many of these investors is investments that are secured on properties where there is a re-based, post-recession rent and a 10-year lease to a tenant with a strong and improving business. While London is the preferred choice for many investors, opportunities are growing strongly across the UK.
Retail remains the dominant asset type in commercial property auctions and accounted for 67% of the properties sold in February/March. The retail sale rate – 87% of all retail assets offered at auction in -February and March sold – strongly -suggests that private investors are rekindling their love affair with shops.
The woes of the high street, which have been at the forefront of the minds of investors, are beginning to be replaced by cautious optimism as local communities and retailers tackle the problems left by the unsustainable consumer boom of the early noughties.
Offices are the next largest auction lot type and accounted for 15% of sales at the early-year auctions. Demand has been resilient for this sector for the past three years and the pricing expectations of sellers and buyers have continued to be aligned, as indicated by the high sale rate of 92%.
Most office investments are bought by skilled property investors, who are able to manage more complex assets for superior returns, or property companies looking to change use to residential. Indeed, the residential option has been the saviour of the 1960s-80s office buildings.
Demand for London properties has remained strong and accounted for one in five properties sold in the latest auctions. The average London lot size was almost three times larger than the average lot size across the remainder of the UK and reflects the strong rise in pricing that has occurred in the capital during the past three years.
Importantly, investor confidence is now spreading beyond the confines of London – a change in sentiment reflected in the greatly improved sale rate for non-London assets.
Yields for both prime and secondary properties selling at auction continue to sharpen and the yield gap between the two types of assets steadily narrows. It is now not uncommon to find prime properties selling at yields of below 5% in the room.
However, the supply of assets has not matched the increased investor demand fuelled by rising GDP, incomes and the increased supply of debt funding.
The availability of debt finance is certainly not the hindrance that it once was. Since the start of the year there have been some significant changes in the type and level of finance on offer, with terms, margins and LTVs getting progressively better.
Tellingly, one of the main changes in the property finance landscape has been a reduction in the “stress testing” used by -certain lenders to determine the level of loan that can be arranged from the rental income of an investment property. Getting finance is now also quicker.
As lenders compete to find new opportunities, some are now able to lend within the six-week auction timeframe. This removes the requirement for bridging finance and brings lower-cost finance back into the -auction property environment.
Against a backdrop that makes it increasingly propitious to buy at auction, it is tempting to ask what more could be done to persuade sellers to bring their product to the room.
Richard Auterac is chairman and auctioneer at Acuitus
